Chennai: Daimler Financial Services India Pvt Ltd., a newly-setup local unit of German carmaker Daimler AG’s financial arm, hopes to break even in four to five years and expects to log a loan book of $500 million by 2016, its global chairman Klaus Entenmann said speaking at the launch of its services in Chennai on Tuesday.
In April, the Chennai-based non banking financial company - a 100% subsidiary of Berlin-headquartered Daimler Financial Services AG that infused $50 million of equity capital in the Indian venture – received its licence from India’s central banker the Resereve Bank of India to be a financier.
Last week, it also got approval from the Insurance Regulatory and Development Authority of India to offer insurance. The company will be a corporate agent for Pune-based Bajaj Allianz with which it has an exclusive tie up for insurance products that will be sold under the name of Mercedes Benz insurance.
But the investment in the Indian business that will contribute to global revenues only in 2016 is not likely raise growth numbers for the German parent this year.
“We are expecting (overall) revenue growth to be between 5-7% this year,” said Entenmann of Daimler Financial, which posted a contract volume of approximately €64 billion for 2.5 million vehicles at the end of 2010.
Daimler Financial will start by financing cars in India and go on to lending to truck buyers in two years. It hopes to maintain a net interest margin (the difference between borrowing and lending costs that is a profit indicator) of 300 basis points or 3%.
“We are bullish about the Indian market but we intend to offer competitive rates… providing financing below the base rate isn’t our approach,” said Sidhartha Nair, managing director of Daimler Financial Services India.
Nair added that in the absence of up to date credit records of customers, company checks would have to be more vigorous than they are overseas.
“There is a bit of conservativeness…we’ve got to have our feet on the street,” he said.
Despite the likelihood of truck financing volumes being higher than car loans, the two businesses will comprise equal halves of Daimler Financial’s India portfolio in the coming years.
The financier may offer branded credit cards by 2013 but is unlikely to enter the fleet management business, a service it offers overseas, anytime soon.
Daimler Financial’s fleet management services overseas include buying, leasing and maintaining vehicles as well as managing drivers. That sector in India is currently unorganized with a large number of small transport operators indulging in price cutting to get business, making it unprofitable for premium service providers to enter.